Blackstone Alliance to Buy Chip Maker for $17.6 Billion

In a rare buyout battle among the titans of private equity, the Blackstone Group has come away with a huge prize.

A Blackstone-led alliance that includes the Carlyle Group, Permira and the Texas Pacific Group announced yesterday that it had won the bidding for Freescale Semiconductor, a maker of chips for cellphones and cars, with a $17.6 billion deal. It is the largest leveraged buyout of a technology company ever, surpassing last year’s $11.3 billion buyout of SunGard Data Systems.

The Blackstone team, which had been in talks with Freescale for months, beat back a late effort from a group that included Kohlberg Kravis Roberts & Company, Silver Lake Partners, Bain Capital and Apax.

Under the terms of the deal, the alliance will acquire the shares of Freescale for $40 apiece, a premium of 30 percent over Freescale’s stock price on Sept. 8, the last trading day before The New York Times reported that the company was in talks on a buyout. The deal was announced yesterday after the stock market closed. Earlier, shares of Freescale slipped 41 cents, to $37.16.

The agreement includes a ‘’go shop’’ provision — a condition that has been appearing more frequently in buyouts. Under that provision, the company can solicit higher offers over the next two months. (But if it did accept a higher offer, it would be required to pay the Blackstone alliance a breakup fee. )

The losing alliance is expected to continue its research on Freescale and it may submit a new bid, people involved in that group said yesterday.

The board of Freescale ultimately decided to accept a sweetened bid from the Blackstone group because the rival offer had a number of conditions and hurdles. For one, the Kohlberg group had not yet lined up financing for its offer.

More important, Freescale would have been merged with the former semiconductor unit of Philips Electronics, a unit that the same Kohlberg Kravis-Silver Lake group acquired last month for 3.4 billion euros ($4.4 billion).

Freescale is the 10th-largest semiconductor company over all but the largest manufacturer of embedded chips for the automotive and communications industries. After more than 50 years as part of Motorola, Freescale was spun off as a stand-alone company in July 2004. Today, Freescale supplies the vast majority of the chips that Motorola uses in cellphones.

Doug Freedman, an analyst with American Technology Research, said the deal made sense because it would allow Freescale to acquire the chip technologies it needs to remain competitive in a business that increasingly demands all-in-one chip solutions.

“They’re getting a great deal,’’ Mr. Freedman said. “They’re showing a lot of vision that Freescale can act as a foundation for consolidation.’’

Freescale’s customers want to buy as many types of chips as possible from the same manufacturer, he said. A similar goal helped drive Advanced Micro Devices’ $5.4 billion acquisition of ATI, the graphics chip maker, this summer, he noted.